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Economists raise forecasts for fourth quarter U.S. growth–and here’s why

posted on November 18, 2011 at 2:42 pm
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Economists continue to increase their projections for U.S. economic growth in the fourth quarter of 2011 as evidence keeps piling up that, despite the euro debt crisis, the U.S. economy will end the year in better shape than anyone expected this summer.

The latest positive indicator comes from this morning’s release of the Conference Board’s Index of Leading Economic Indicators. The index climbed 0.9% in October. That’s the biggest jump since February. Economists surveyed by Briefing.com had expected the index to rise 0.6%.

And that has contributed to another round of higher forecasts from economists. JPMorgan Chase, for example, has raised its forecast of fourth quarter U.S. growth to 3% from a previous projection of 2.5%. Morgan Stanley has upped its forecast to 3.5% from 3%. Macroeconomic Advisers has bumped its forecast to 3.2% from 2.9%.

Contrary to its name, the Index of Leading Indicators actually includes very few leading indicators. Usually, seven out of the 10 components of the index are known prior to the release—the exceptions being manufacturing orders for consumer goods, manufacturing orders for capital equipment, and money supply as measured by M2. This morning’s surprise, however, was almost entirely a reflection of a timing issue in the data on U.S. building permits. According to Briefing.com, the actual number of permits was released after economists had made their predictions based on the forecast for building permits. Actual permit growth, released only yesterday, was much stronger than forecast at 10.8% versus 1.5%.

Without that timing factor, the Index of Leading Economic Indicators would still have climbed but the gain wouldn’t have been a surprise.

Why is U.S. economic growth accelerating when the EuroZone is in a crisis that is pointing to a recession in 2012 (for those countries that aren’t already in recession)? It doesn’t seem logical, I’ll grant you.

But it’s largely a function of the very small U.S. dependence on exports. While exports account for 29% GDP in China (2010 World Bank data) and 41% of GDP in Germany (2009 World Bank data), they make up just 11% of U.S. GDP (2009 World Bank data.) U.S. economic growth depends far more on spending by U.S. consumers, which from the latest retail sales numbers is holding up extremely well.

Better than expected growth in the fourth quarter doesn’t by any means say that 2012 will be equally strong. Stimulus measures, such as a 2 percentage point cut in Social Security payroll taxes, put into place during the 2010 Lame Duck session of Congress are set to expire at the end of 2011.The deepening euro debt crisis could wind up hitting the U.S. economy if it sucks in U.S. banks. And the inability of the Super Committee to come up with a deal to cut the U.S. budget deficit could undermine consumer and business confidence in 2012.

In the meantime, though, and even if only for the short-term, the U.S. economy is looking better than expected.


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  • rick62838 on 18 November 2011


    Why is is that your analyses of trends and issues around the world (not to mention your take on individual stocks) are so plausible, thoughtful, well researched and persuasive but your own fund — which I bought $10,000 of a year ago and now have $8000 left — is doing worse than all the stocks and funds I own, and I own 1.3 mil worth If you had most of your money in your fund, you’d be one unhappy investor. But you proably don’t.

  • chu chi on 19 November 2011

    dear rick, i loss too, i invested in stock 20 yrs. before i followed some “mad gurus” my invasting lose is 99%. than i get a lesson. so called guru is hired by walll st. help to set trick let invester in. since i followed jim 12 yr.ago at msn , my invasting is improved. So i trust jim. he is a honest man. please patient, and wait, i think he’ll do better.

  • daveh on 20 November 2011

    One of Jim’s problems is that he has to come across as optmistic. Otherwise, he will lose his job. An investing site that is negative on the stock market has little appeal.

  • Jim Jubak on 21 November 2011

    rick, I actually do have pretty much all my money in my fund, JUBAX. The fund is down 11.92% in the last year. Morningstar benchmarks it against the MSCI EAFE index which is down 11.32% in the same period. It’s been hard to find anyplace to make money in the last year in a long only fund. We’re got bear markets or near bear markets in Europe, China, Brazil, and the U.S. My goal recently has been to manage downside volatility so that the fund goes down no worse than the S&P 500 and to build a portfolio that will go up faster than the S&P when markets reverse (or at least when emerging markets reverse). I think I’ve done that if October is any guide but I’d sure like a longer test. And daveh, I’m self-employed. In the years that I’ve been doing this, my experience is that traffic to a site like this goes down when the markets do no matter what I say. Think of all those folks out there who aren’t opening their brokerage statements right now. (Not that I blame them.)

  • jacquesailor on 21 November 2011

    Thank you Jim we got it

  • mikeb on 27 January 2012

    Jim, I can’t help but contrast the good humor and consideration you show, day in and day out, in your publicly available columns, with the negative and recrimiinatory sentiment we just heard. Let’s both wish him well, and hope that he brings a fraction of the warmth you show in your columns, to his fellow travelers through life. Thank god for all people, happy or mad. And thank god for Jim Jubak.

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